1. Transport
March 23, 2020updated 10 Aug 2022 8:15am

Has the government just renationalised Britain’s railways?

By Gareth Dennis

This morning, in what can only be characterised as a whimper rather than a wail, the rail franchising system that has been in place in Britain since 1996 came to a rather unceremonious end.

With travel limited to only critical workers as a result of the rapid spread of coronavirus – EVERYONE ELSE: STAY INDOORS – there was never a chance that the over-stretched rail system would cope in its current guise, and it was likely that government would have to step in.

And step in it has. Rather than taking the franchises back in-house (as it has previously done with LNER and Northern using so-called “operators of last resort”), the government has essentially re-awarded the franchise holders with quick-and-easy “stay-put, we’ll pay you” contracts.

This isn’t full-blown nationalisation. The private companies that currently run franchised trains will keep doing so, except that rather than paying a set premium to government based on their earnings, and keeping they rest, they’ll be paid a set amount by government (2 per cent over the cost of running the service) to keep trains moving, albeit to a reduced timetable. This is the operator model already used by Merseyrail, London Overground and TfL Rail. 

However, when rolled out across the whole country, this does represent a radical shift in how our railways will be operated. And despite the stated expiry date of six months for this arrangement, it is very unlikely that we’ll see rail franchising return afterwards.

The number of companies with an interest in operating Britain’s franchised train services has diminished over the last decade, as government has cranked up its payment/risk management requirements and the overcrowded nature of the rail network has left less room for “commercial innovation”.

Given that passenger numbers have dropped by upwards of 70 per cent compared to this time last year, it was inevitable that many of the franchise holders – several of which were already on the brink of collapse thanks to over-eager bidding and delayed infrastructure delivery – would default on their payments to government.

In the background, the long-delayed report by Keith Williams as part of his review into the future of Britain’s railways had also widely been expected to end franchising. That review kicked-off back in September 2018 in the aftermath of the timetable collapse earlier that year. It is widely expected that Williams will propose bringing Britain’s railway operations closer in line with those of Japan, with joint train-infrastructure operators delivering services over larger geographical areas. At the very least, franchising, in the words of the chair himself, was “not the way forward”.

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The report has been repeatedly delayed since the change in Prime Minister (Johnson or Cummings, take your pick), no doubt as a result of differences of opinion across government. But the inevitable demise of the current franchise holders has somewhat forced the issue.

What’s more, the share prices of the transport companies operating franchises have dropped to such a dramatic extent over the last month that there is only a minute chance that they would bid for franchises again even if government did decide to attempt a resurrection. For example, National Express’s share price is down at post-2008 crash levels; Go Ahead and Stagecoach are back where they were in 2003; and First Group’s share price is lower than it ever has been since trading began back in 1995.

So what will happen after the six months has elapsed? My bet is on the rail operator map being slightly re-drawn, and then new management contracts being given out, in line with the expected proposals of the Williams Review.

It’s worth noting that government hasn’t mentioned the open access operators – Eurostar, Grand Central, Heathrow Express and Hull Trains – who operate outside of the franchising system already. Will these operators be left to fend for themselves, and their inevitable collapse just be part of the COVID-19 collateral? It is certainly the case that the open access operators were a tricky match for Williams’ expected proposals. But would a Conservative government really let – arguably – the only true success stories of the privatised British rail operation fail?

For many of you sitting working from home, you’ll have little doubt that the spread of coronavirus will result in seismic changes to the wider world. For the microcosmos of Britain’s railways, that change has already happened.

RIP Britain’s rail franchising system: 1996 – 2020.

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